7-Step Practical Guide to Starting a Tech Company (Without Money)
The following contribution is from the MassChallenge portal, which was founded in 2009 in Boston, MA, MassChallenge’s mission is to equip bold entrepreneurs to disrupt the status quo and create meaningful change.
MassChallenge connects startups, experts, corporations, and communities to grow and transform businesses and economies. We do this work because entrepreneurship is a uniquely powerful force that drives progress in the face of humanity’s greatest challenges, creates opportunities for people, and generates jobs for our economy. We work across all sectors to drive a stronger future through collaborative innovation, and we support all founders, whether they fit or break the mold of traditional companies.
This is a question we get asked a lot:
How do you start a tech company with no money?
Well, let’s start by saying that the average survival rate for a startup is around 10%. That’s right: 90% of startups close down before they grow big enough to sustain themselves.
Why?
As research from a large database of startup retrospective analyses shows, failure often centers on a few major mistakes:
1-startup-fails
Nearly half of startups that fail closed their doors because they didn’t build a product that people actually needed. Some failed because they ran out of cash, others because of an ill-equipped team.
While the statistics paint a grim picture, knowledge is on your side
If you know the biggest pitfalls to avoid and have a solid game plan for building, marketing, and selling an app that people actually want to use, your startup will have a chance at survival.
So where do you start?
In this article, we’ll cover a 7-step action plan for starting a successful tech company:
– Develop an MVP the market wants (Minimum Viable Product)
– Validate the app with early users
– Iterate to achieve product-market fit
– Build a skilled and unified founding team
– Get the funding you need to grow
– Develop and practice an agile methodology
– Generate funding and scale the team
This guide is based on the lean startup methodology, so let’s get a primer on how successful startups think before we dive into the step-by-step guide.
The Lean Startup method is a business management methodology whose fundamental goal is to create a scalable business model in an agile and secure way, shortening development cycles, eliminating unnecessary practices, and establishing continuous innovation processes.
Don’t Overcomplicate, Start Lean
For a tech company to make money, you’ll need a market that’s willing to buy, the right feature set to solve those users’ problems, pricing your market can afford, and hundreds of other things you can’t know at the start without doing thorough research and spending a ton of money
2-Build-Learn-Measure
That’s why startups do best when they grow iteratively, based on user feedback from a constantly improving app.
Eric Ries outlines this successful methodology in his book The Lean Startup. This radical guide to getting a low-cost tech business up and running before you run out of money has become the startup bible.
To run an agile startup, don’t get bogged down by setting up an LLC right away. It’s unnecessary legal baggage.
The truth is, you can start a business with a general partnership and a co-founder. This cuts costs and saves you from having to deal with issues like organizational structure and taxes before you have a product to sell.
In the lean startup methodology, technology is much more important than the structures that support it
After all, your product is what will make you money, so start with creation.
If you have the skills or are willing to learn to code, you can start laying the groundwork for a new tech startup as a side hustle, allowing you to pay the bills with your day job. This will give you an initial prototype that you can take to other potential co-founders.
However, as a non-technical founder, you need to sell your vision to a potential CTO (chief technology officer) – this way, the technology costs nothing but time.
Ok:
Now that you have the essential elements of the business in place and at least one technical team member, it’s time to get things up and running.
7 Steps to Building a Successful Tech Company
#1.
Shortlist the key features of an MVP
3-min-viable-product
Most great startup ideas are the result of a founder being unable to come up with a good solution to their problem. In the words of Paul Graham:
“The verb to use with regard to startup ideas is not ‘think’ but ‘observe.’ At YC, we call startup ideas ‘organic’ those that emerge naturally from the founders’ own experiences. The most successful startups almost all start this way.”
If you’re developing a product based on your own problem, you might be the most qualified person to list its key features.
But, assuming others share this problem and are looking for a solution, you can bring in early users to help refine the value proposition.
Defining the features, collecting feedback, and validating the concept is critical to ensuring your product roadmap is pointing in the right direction.
Since 42% of startups that fail close due to poor product-market fit, making informed decisions at this stage is critical to survival.
You can use a simple framework like this to define user goals and see how different pain points relate to core product features:
– What’s the big picture?
– Who are the customers?
– Who are the end users?
– Why would they want it?
– Why are we building it?
You need to be very selective when building an MVP.
Focus on providing the minimum set of features that users need to achieve a goal or deliver value – your project management app needs uploading attachments more than support for custom emojis.
3 Mistakes to Avoid When Building an MVP
Overcooking Your MVP
4-simpsons-startups
The idea behind starting small is to start fast.
Your MVP doesn’t need to cater to multiple audiences and use cases – it just needs to be validated by a niche. Get a small, highly targeted segment of your market to buy into the idea, and you’ll get the money needed to expand an MVP and take it to a broader market.
Picking the wrong market segment
Knowing who to sell to is just as important to creating a market-fit MVP. You can’t get an engaged community of early adopters to provide feedback if you’re targeting the wrong segment, and without those early adopters you won’t get the time and insight to iterate and grow.
Refusing to change course if the MVP doesn’t hold up
Even though you’ve done your research on the audience and feature set needed to compete in the market, your MVP may simply be marketing to the wrong customers or missing features that convince customers to buy.
“Failing to validate your MVP only invalidates one small way of acquiring customers, not the entire business model.” — Swarnendu De
#2. MVP Pre-Sales
5-ideas-results
A lead capture page for GrowthHacker Projects’ MVP, which funneled qualified companies into a concierge demo.
One way to combat the problem of running out of cash is to attract paying customers as quickly as possible.
This gives customers a financial stake in the success of the product – they’ll be willing to help «co-develop» the product in exchange for getting the features they ask for (and will want to pay for).
Sales = Validation!
One of the biggest tipping points for any company is finding out that people will actually pay for what you have or plan to build.
Here are the different types of MVP pre-sales strategies you can use to quickly validate a product concept:
Single-feature MVP.
Focus on achieving a user goal, validating the need for the feature, and driving early adoption.
Fragmented MVP. Keep costs down by combining existing products and services to create a unique offering. For example, your product could be the result of a few Zapier zaps or a no-code prototype built with Bubble.
Concierge MVP. Do some or all of the software work manually and work closely with clients to understand how best to improve. With that information, automate manual work with technology.
Wizard of Oz MVP. An MVP that looks like a software service, but its results come from manual work. This is a way to validate the results your app will provide and whether customers will pay for them.
Crowdfunded MVP. Many successful startups grew out of a single prototype video uploaded to Kickstarter. With crowdfunding, you can build buzz and get feedback on a product before putting it into production. This keeps costs down and gives you money to survive.
Test the MVP. Validate demand for your idea by sending paid traffic to a pre-launch signup page. The number of signups will help you gauge the level of interest.
#3. Get Talent with Capital
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Not technical? No problem.
You’ll be able to find an enthusiastic technical cofounder if you have the right startup idea and an offer of capital.
You don’t have to spend money on getting talent; instead, use a platform like VentureStorm to connect with your perfect CTO or CEO.
There’s a lot of debate on the topic, but startups typically offer technical cofounders around 10-35% of the equity.
This is because future funding will further dilute the equity, so giving away a share close to half can be a risk for CEOs looking for investment.
#4: Acquire Customers
Once the MVP has been validated and iterated on with user feedback, the next step is to launch the product to a broader segment of your target market.
You can meet all the right user goals with all the right features, but if no one knows your product exists, you lose out to a competitor.
In the world of SaaS, it’s a land grab. You have to take the oxygen out of the room.
What SaaS means: Software as a Service. It’s a way of offering users software hosted on a server outside the company. Contrary to what normally happens, the provider offers cloud hosting within the solution and takes care of its maintenance, while the user can access the contracted services from any site or computer.
For startups that don’t have enterprise budgets, large-scale paid advertising campaigns and a well-oiled sales team are largely unattainable.
Lack of budget is definitely a disadvantage, but not the end of the game. It just means you have to wing it and do hard manual promotion that doesn’t scale.
This often involves finding where your customers hang out online and getting in on the conversation.
Building early buzz with online communities
Every startup remembers their first big hit on Hacker News or their Product Hunt launch, probably because the amount of traffic it sent to the servers took them offline.
A popular piece of content or a well-received product launch that makes it to the top of sites like Reddit, Hacker News, and Product Hunt can send tens of thousands of visitors to your site. It’s a tactic used as part of regular content promotion and bigger product or feature launches.
For example, here’s a Hacker News relic from 2007 by Dropbox founder Drew Houston:
7-hacker-news
Not only did this post catch the attention of product experts, it also got thousands of users engaged on Dropbox.
For small sites, this could mean a 60%+ increase in sessions overnight. Check out the Show HN category to see what’s most popular and try to replicate the formula.
Reddit is another site that consists of thousands of communities, from SaaS to data visualizations. Reddit is well known to hate self-promotion, but submitting content that is actually relevant and useful to a specific community can be a way to gain vital attention in the early days:
8-naming-startup
This post links to a promotional resource, but it gives the community the full text in a Reddit post; this makes it easier for users to read and comment, and is considered less spammy than just leaving a link on the subreddit.
Four startups that grew by doing things that don’t scale
9-Tinder
Apps like Tinder live and die by the size of their networks. It’s a hyperlocal app, so it needed to onboard a lot of users in geographic proximity during the pilot period.
Tinder launched a series of popular parties in California and made it mandatory to have the app installed in order to enter.
People who attended the parties installed the app, and Tinder’s user base grew to 15,000 overnight.
The «network effect» created a viral loop in the product, helping to retain existing users and attract waves of new ones.
In 2019, it was announced that Tinder had 5.9 million paying users.
10-quora
Developing a community-driven product without an actual community is a difficult task. In the early days of the site, Quora’s founders would start and participate in threads to create the illusion that the community was much larger than it actually was.
Herd mentality took over the site, and soon thousands of new users flocked to the site to participate in the conversation. Eventually, it reached critical mass, and the founders no longer had to generate new conversations.
Generating a wide variety of question-and-answer content on different topics is also a way to rank in search engines for specific long-tail keywords.
By seeding Quora with a variety of frequently asked questions in the worlds of startups, technology, and coding, it became a wiki for information that could be expanded with different perspectives from the community.
In the beginning, it’s critical to provide a way for users to see how they should use the platform and why it’s beneficial to them; Quora staff did this by leading by example.
Additional resource: Check out step #12 of this guide to learn how to scrape high-traffic threads from Quora. This is a great way to get involved in the conversation, provide value, and drive targeted referral traffic for your tech startup.
11-twoodo
It may not be a huge change for a mature product, but 72 signups can make a huge difference for an early-stage startup.
Twoodo managed to attract 452 unique visitors who converted at a rate of 16% with a strategy that involved the founder making targeted comments on 40 blogs.
The entire project took just 6.5 hours, but it helped the company land its first customers.
12-stripe
The founders of Stripe, now a well-established duo in startup circles, got early customers using their product with some very practical tactics.
The founders visited potential customers in person, where it was easy to gain access to their computers and do some custom setup work for the Stripe API (remember what we said earlier about how an MVP can be partially manual at first?).
“If you were interested in Stripe, they would set it up for you on the spot. They wouldn’t go back to their office and email you a link expecting you to sign up. There was no other option. If you said “yes” to trying Stripe, they would grab your laptop and set it up for you.” — Mikael Cho
Additional resource: Want more inspiration? Check out this growth hacking guide that breaks down the specific strategies and tactics 77 hypergrowth companies used to land their first paying customers.
#5. Look at the numbers
13-product-signup
By driving new users down the product funnel, you get data on how your app is performing in the hands of real customers: are they sticking around or leaving quickly? What changes need to be made?
While signups are great, they only tell part of the story. If you can
